In any investment strategy there are number of strategies and tips that can be used to maximise wealth. Whether starting with a lump sum or saving on a regular basis, a long term plan will ensure that you are on your way to building as much wealth as possible.
When planning an investment strategy the following tips should be followed:
1) Time Frame: The time frame for investment is the first key decision to address. A long term horizon can be defined as over 5 years.
This is critical as such a time frame for investment will allow an investor to better cope with market fluctuations and provide every possible chance that capital will grow in value. The longer the time frame, the better the probability to see out various economic cycles, changes in government and interest rate settings which, in the short term can affect market values.
By benchmarking your returns on a yearly basis as opposed to daily or monthly, investors are better able to cope with seeing changes in values and not be worried about the every increasing flow of news that may affect their long term plan.
2) Investment Selection: A long term time frame towards investing opens up investment opportunities in assets that have the potential to grow in value such as shares and property.
History typically shows that well selected shares and property increase in value over a 5 – 10 year time frame, although that is not always the case. Markets move both ways and it is this feature we rely on to grow our asset base over time.
3) Diversification: The old adage do not put all your eggs in the one basket holds true today now more than ever. Not all assets prices move in the same direction at the same time and to provide some element of risk protection, investors should have an exposure to various investments. This could mean an exposure to shares and property.
Alternatively you could have a 100% exposure to property but diversification would mean holding different properties. With respect to shares, diversification would mean having exposure to different shares in different sectors to gain the benefits of diversity. Alternatively you could diversify your equities by allocating to different countries, regions and industries. The Australian market only makes up 2% of world stock markets meaning the vast majority of investment opportunities lie offshore.
With changes to technology and money flows, Australians now have more choice than ever when it comes to making investments. Even after following the above investors should conduct their research very carefully to make sure the investment has sound fundamentals to give you every chance of success. You should seriously consider engaging a licensed financial planner who can work with you to develop a long term plan that takes into account your specific circumstances and then review the strategy on a regular basis and make changes when needed. These steps will put you well on the way to long term wealth creation.
By Anthony Bell
www.bellpartners.com
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